Hi BP Squad! Happy Thursday
As a lender one of the biggest hiccups in the flow of funding a loan and financing the rehab is the Rehab Budget and Supporting Documents.
Growing up, I remember my Dad writing all of his renovations on the back of an old receipt with a thick, rectangular pencil... although not the prettiest rehab plan, it worked for him! As many GC's and first time investors start off, they may do the same! That is okay at first but when it comes to working with a lender, it's time to throw that old paper away.
Creating a Rehab Budget, Bid and Sketches may seem overwhelming at first, especially when it comes down to seeing that final dollar amount. My best advice is to take it line by line! If you aren't very tech savvy, grab a friend or family member to help you create that beautiful excel doc.
At the end of the day, you will be so thankful for being organized and having a strategic plan ahead of you! A Win-Win for you and your lender for a smooth funding process!
So, Here are My Top Tips for Fix n Flippers When it Comes to Rehab Below:
- PLAN YOUR SCOPE OF WORK AND REHAB BUDGET WITH DETAIL
- FORECAST PROJECTED BUDGET AS ACCURATE AS POSSIBLE
- USE A REHAB BUDGET TEMPLATE PROVIDED BY THE LENDER RATHER THAN MAKING IT SO YOU DON'T FORGET ANYTHING
- HAVE 25% OF YOUR REHAB BUDGET AVAILABLE IN LIQUID FUNDS
- DRAW OR DESIGN SKETCHES OF BEFORE AND AFTER REHAB -- ASK YOUR LENDER FOR HELP IF YOU NEED :)
- ASK YOUR LENDER IF THEY OPERATE ON A DRAW PROCESS OR NOT
- ASK YOUR LENDER IF THEY CHARGE INTEREST ON UNDRAWN FUNDS
- ALWAYS OVERESTIMATE YOUR REHAB BID -- EASIER TO GET REIMBURSED RATHER THAN ASKING FOR MOER FUNDS (KEEP IN MIND YOUR RESERVES THOUGH WITH A HIGHER REHAB AMNT)
What are some of your best practices when it comes to working with a Lender as a Fix n Flipper? Let me know!
Many newbie flippers fail at estimating rehab budgets as they have not had enough practice or real world experience so getting the help from their lender is certainly one way, but ultimately, one must learn this if you intend to be successful.
What you describe above sounds more like hard money lenders and NOT private money lenders - big difference although many intermix the terms which is not accurate. Private money lenders are typically not licensed, private individuals you form a relationship with and one in which they are looking for alternative investments other than the stock market, bank CD, etc. Hard money lenders are professional licensed companies or individuals who lend their own (or others) capital to investors and make money from points, fees, and interest spreads. They have way more paperwork, they typically have lower LTV's and typically demand rehab draws as opposed to lump sums provided to the flipper.
The good thing about going to a professional hard money lender is that they will evaluate and underwrite your deal and if it is not good, they are not going to lend on it which is another wall of defense to the beginner rehabber who thinks they have a deal but actually do not.